Home Warranty

Yesterday we touched on the plummeting FHA capital reserves and the possible need for a tax payer bailout. Today the FHA released the official results of the audit as well as their plan for how to shore up its books.

The NY Times has an excellent piece on the FHA’s next steps. An excerpt is below – please click here to read the entire article. This is an important read for any real estate pro – it will impact your business.

The Federal Housing Administration, a government agency that insures mortgages, said on Friday that it was taking steps to shore up its books and avoid a taxpayer bailout.

An independent audit released on Friday projects that the agency’s expected losses will swamp its anticipated revenue, with a shortfall amounting to about $16.3 billion in its portfolio of insured home mortgages. That has raised the question of whether it will need an infusion of cash from taxpayers for the first time in its eight-decade history.

“This is the first time that they’ve totally run out of money,” said Representative Spencer Bachus, Republican of Alabama, said on Thursday. “They have about $600 million, as I understand, that they’re burning through. And within a month, because of the number of foreclosures, they indicated they will have to come to the American people and ask for money.”

But federal housing officials stressed that the shortfall was projected, and that they were adopting measures to avoid tapping taxpayer funds. Shaun Donovan, the secretary of housing and urban development, announced a series of steps to reduce losses and increase revenue at the F.H.A.

These measures include bumping up its annual mortgage insurance premiums on new loans by 10 basis points. That will cost borrowers about $13 a month, Mr. Donovan said. The F.H.A. will also sell off about 10,000 delinquent loans each quarter, increase short sales of homes where the loan exceeds the value and amplify its efforts to keep families in their homes, avoiding costly foreclosures.

The F.H.A. expects these changes, plus other measures it recently put into effect, to contribute $8 billion to $10 billion to its overall value in fiscal years 2013 and 2014. The agency said the new steps would begin as soon as January.

The agency also is asking Congress for new administrative capabilities to better manage its portfolio of loans and cut losses. “We need help from Congress,” Mr. Donovan said.

In a meeting with reporters, Carol J. Galante, F.H.A.’s acting commissioner, said, “It’s literally impossible to say that we will or won’t need a draw” from the Treasury at this point. “We’re doing all this to increase the likelihood that we will not.”

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The California state Assembly and Senate passed a package of bills giving Attorney General Kamala Harris new powers to pursue financial crimes. The legislation is moving to the governor for signature.

The twin bills (AB 1763 and SB 1474) allow Harris to convene a special grand jury in order to prosecute alleged crimes in different jurisdictions, which would aid the Attorney General as part of the national mortgage fraud task force formed in January.

Under current law, separate grand juries are required to cover fraud victims located all over the state. Charges must be filed in each county where a single defendant may have committed a crime.

“The Attorney General is currently engaged in the investigation of significant crimes,” said state Sen. Loni Hancock, D- Berkeley. “Unfortunately, county-by-county grand juries do not work well in dealing with large-scale wrongdoing in multiple jurisdictions. With this bill, the Attorney General can investigate multijurisdictional crimes – it will provide protection when Californians need it the most.”

Fifth Third Bank now joins Bank of America in the courtroom – both have, as of Friday, been hit with putative class action lawsuits claiming they gained millions of dollars in illegal referrals and kickbacks from private mortgage insurers.

The almost-identical suits have been filed in Pennsylvania federal court by the same law firms. In each case, the lenders are being accused on violating the Real Estate Settlement Procedures Act (RESPA,) reducing competition and boosting homeowner’s premiums.

From 2004 to 2011, BofA and Fifth Third Bank brought in millions of dollars in purported premiums but only paid out a fraction in claims. Fifth Third Bank received $54 mil in supposed premiums but paid less than $5 mil out in claims, while BofA got $285 mil and paid out around $59 mil. This helped the banks reduce their own risk while leaving insurers taking on almost all of the risk themselves.

Along with BofA and Fifth Third Bank, other defendants named are six private insurance companies, including United Guaranty Residential Insurance Co. and PMI Mortgage Insurance Co. BofA additionally named Triad Guranty Insurance Corp. as a seventh insurer.

It seems BofA and Third Fifth Bank are just following in the footsteps of HSBC USA Inc., which faces the same sort of suit, filed March 12. Finally, those greedy companies may finally have to pay up for what their actions have caused the people, the housing market and the economy.

A class action lawsuit was just filed against Old Republic International, Old Republic Home Protection (ORHP) and Old Republic National Title Insurance Company in federal court in California. The lawsuit alleges that Old Republic and some of its subsidiaries “violated federal and state law by paying commissions and kickbacks to real estate agents in exchange for the agents’ referral” of Old Republic settlement service business. It is also alleged that Old Republic “actively concealed the kickbacks from consumers and federal and state regulators.”

The lawsuit is called Campion v. Old Republic International Corporation and was filed on January 27, 2012 in the United States District Court, Northern District of California, Oakland Division. Click here for a copy of the complaint.

According to the complaint, ORHP made more than 190,000 illegal payments between 2007 and 2009. It is alleged that these payments were made to more than 28,000 offices, agents, brokers, escrow offices, and lawyers. The complaint also alleges that the “payments were not in exchange for settlement services actually provided and were not nominal payments. In the case of kickbacks in exchange for the referral of home protection contracts, for example, the payments averaged approximately one-fifth the premium of such policies.”

The complaint also specifically targets “Marketing Agreements” or “Administrative Services Agreements” between ORHP and real estate brokers or agents. Under these Agreements, ORHP allegedly made payments to brokers or agents when the consumer purchased a home warranty contract. The lawsuit notes that, according to HUD, characterizing “such arrangements as ‘marketing’ or ‘administrative’ agreements does not render the underlying conduct legal” and that the agreements are “only a means to facilitate payments for referrals by persons in a position to refer settlement service business, in violation of RESPA.”

The lawsuit alleges that ORHP and other Old Republic subsidiaries violated RESPA, the California Insurance Code, and California’s unfair competition law by their kickback payments to real estate brokers or agents. The Complaint seeks restitution “of all sums unlawfully collected” from consumers, as well as treble damages and attorneys’ fees.

Did you receive compensation from ORHP or another Old Republic subsidiary? Are you a real estate broker or agent who was paid a fee by ORHP when a consumer purchased a home warranty contract? Are you a party to a Marketing Agreement or Administrative Services Agreement with ORHP?

If so, consider your potential liability. Will the brokers or agents who received compensation be the next targets of the class action lawyers? Will the CFPB and RESPA investigators step in?

Please share your stories of working with ORHP with RE-Insider. Have you experienced these “kickbacks?” We will respect your anonymity and post no names.

If a real estate agent refers his clients to an NHD Report that over discloses, can the clients also be held liable for over disclosing? What if it costs the agents the sale?

Reports like this one from Disclosure Source come with a colorful map indicating the location of the property with an icon in the shape of a house. The offending map has a dimension of about four (4) square miles.

The map shows that the house is NOT in any hazard zone for Flood Hazards, Dam Inundation, Very High Fire, Wild Land Fire, Earthquake Fault, Seismic Hazard or Bodies of Water and Rivers. Sounds good, except that this Disclosure Source map shows a Flood Hazard Area, a Dam Inundation Area, and Bodies of Water and Rivers within a four square miles proximity to the location of the house.

In this market condition, where properties that once sold in days are now on the market for months or years, how might the seller react if the buyer were to walk out of escrow because the Disclosure Source NHD Report shows that the property is within 4 square miles of a hazard zone – a fact that was not a legally required disclosure? Does the seller have a right to sue the agent for costing him the sale?

The California Civil Code provides that sellers and their agents must disclose if a property is either IN or NOT IN one of those hazard zones. Showing hazards within four square miles of the property is definitely not required.

It is up the agent to choose a disclosure report that meets the state requirements: California Civil Code Section 1103.2 and Civil Code Section 1103.7 specifically read: transferor(s) and their agent(s) acknowledge that they have exercised good faith in the selection of a third party report provider. Don’t set yourself up for needless liability by thinking those colorful maps are not important – they could cost you a sale and cause you a lawsuit

Please share with us your experiences with “the maps.” Your comments and suggestions are valuable to all our readers.

What does the Consumer Financial Protection Bureau (CFPB) really want for the holidays? Isn’t it time that Santa handed the CFPB a director? Without a director, there aren’t enough bullets in the CFPB’s gun to begin to clean up the real estate industry.

It’s now been nearly five months since the creation of the CFPB with its directive to take the reins of RESPA violation enforcement from HUD. But the agency is stalled with the lack of an agency director.

Until a director is approved by the Senate, the CFPB can only enforce existing consumer regulations but not conduct oversight of the so-called “non-bank” financial institutions such as mortgage lenders that were responsible for many of the practices leading up to the financial crisis.

To be fair, it’s not as though President Obama isn’t trying. His top choice, Richard Cordray, was approved by the Senate Banking Committee and backed by Treasury Secretary Tim Geithner. However, Republican senators have blocked the appointment, not even letting it get to a vote because they disagree with the powers the CFPB have been given.

The CFPB’s mission is to make consumer financial products and services work for average Americans. Part of that mission is to ensure that consumers are provided with helpful information about the cost of their mortgage settlement and protected from unnecessarily high settlement charges caused by abusive real estate industry practices. That’s where RESPA comes in.

But five months in, and they still don’t have a director – but they do have limited power and direction. As it stands now, the CFPB has really no way to penalize or take corrective actions against wrong-doers.

How long will we have to wait? The holidays are coming. When will Santa arrive at the CFPB?

This Christmas, instead of sending a letter to Santa, send a note to your senator asking them to give the CFPB a director. Click here to find your senator and contact them directly.

Let’s show our representatives how important this issue is – here is a short letter that you can forward on to your senator.

As a proud member of the real estate industry, I eagerly anticipated what reform would come upon the inception of the Consumer Financial Protection Bureau (CFPB). But since the watchdog agency was handed the reigns to investigate RESPA violations in July of this year, I’ve been disappointed in the results. The most important thing you can do now is to install a director of the CFPB who will begin to serve the purpose that the agency was founded to serve. Please help to right this wrong and set a vote to confirm Richard Cordray as the Director of the CFPB. All real estate agents (and your constituents) are waiting for this.